Designing “green” can reduce operating costs and can help differentiate you from the competition, but many architects who design schools and other public buildings are not aware that they may be eligible for a significant tax deduction. The architecture firm in charge of a building’s design can claim federal tax deductions for certain energy-efficient features in public schools and universities as well as other public buildings.

EPAct §179D provides up to $1.80 per square foot for the installation of systems that reduce the total energy and power costs by 50 percent or more as compared to ASHRAE 90.1-2001 baseline standards.

The IRS requires that a building be evaluated in three areas: lighting, HVAC/hot water systems, and building envelope. If the building meets the 50 percent improvement standard in all three of these three areas, it will qualify for the $1.80 per square foot deduction.

If a building doesn’t meet the full 50 percent threshold, the IRS allows for partial deductions. For example, if only one of the three areas meets the criteria, the building will qualify for a $.60 per square foot deduction. The requirement in the case of the building envelope is that the energy-efficiency must be improved by 10 percent or more. For lighting and HVAC/hot water systems, the improvement must reach a 20 percent threshold. Each of these areas requires modeling and that the calculations be based on IRS-approved software programs.

In the case of lighting, the IRS provides an alternative method of evaluation. These interim lighting rules allow a watts per square foot calculation or a lighting power density calculation to be used in lieu of modeling when measuring energy efficiency. If the lighting is 25-40 percent more efficient, the deduction will be between $.30-.60. The interim lighting rules also require incorporation of a bi-level switching component and an automatic shut off provision.

The person or organization that makes the expenditures for construction is generally the recipient of the §179D deduction. Usually this is the building owner, but in the case of schools and other public buildings the deduction is passed to the firm in charge of the building’s design. These deductions may be exercised on amended tax returns potentially generating a refund from the IRS to the firm’s principals.

The Energy Policy Act of 2005 encourages sustainable building practices. There is currently a proposal in Congress and the House to increase the maximum deduction to $3.00 per square foot, making this deduction even more valuable for architects who design green.

With a growing number of government mandates for green building, architects can turn green designs into gold.

Founded in 1983, SourceCorp specializes in EPAct §179D tax deductions, cost segregation studies, LIFO accounting solutions and R&D tax credit studies. http://www.sourcecorp.com

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